Selling things you made yourself can be a good way to make money. But you need the right pricing formula to make sure you cover all of your business costs and have enough left over to grow. Here is a guide for people who sell handmade items on Etsy or in other handmade businesses on how to price their items.
Some Useful Terms to Know
When setting prices for hand-made items, there are a few different structures and terms that might affect your choices. Here are the most important terms to know when pricing your handmade goods, from retail price to wholesale price.
When an item is sold directly to a customer, it has a retail price. This can be the price listed on an online store or in a store. Most of the time, this includes the retail markup that stores add on to cover extra costs like rent and marketing.
A wholesale price is the price charged for a large supplier or distributor to buy a lot of an item. This could be the price per item you charge a local store that sells your products directly to customers. Your wholesale base price is usually lower than your retail price, since selling in bulk is cheaper and makes you more money.
Most of the time, the selling price is the last amount that a customer is willing to pay for an item. Some owners of handmade businesses or stores might set a price and then have to change it later based on how much the item actually sells for.
The Pitfalls of the Standard Pricing Formula
Many business owners use standard pricing to figure out how much it costs to make each product. Usually, this includes the cost of materials and may include a small amount for labour costs. But this doesn’t usually take into account the extra work and money that goes into building a handmade business, such as the costs of a website, marketing, and shipping. You might lose money before you figure out how to price a handmade product in a way that will make it more likely to sell.
The Profitable Pricing Formula
Instead, a strategy for setting prices that make money should take into account all the costs of running a business while still appealing to the people you want to buy from you. If you want to know how to price crafts in a way that takes into account your overhead costs, supplies, labour, and profits, the following things can help you get started.
How much do the things you need to make each thing cost? Take into account both the materials used for each item and a small amount for tools or equipment that are used to make more than one item.
Markup for profit: There should be a small profit margin built into each product. When selling directly to consumers, this amount will be more than when setting wholesale prices. Profits could drop anywhere from 5 to 20%, depending on how much people think your items are worth and how much money you want to make.
Labor: Set an hourly rate for yourself or anyone else who works for your business. Then think about how long it takes to make each item and do any other tasks that help make sales happen. This could mean preparing shipments, doing marketing, or making websites.
Wage: Figure out how much to pay yourself and any other team members per hour. The average rate for craft artists, according to the US Department of Labor, is about $20 per hour. Rates can change based on where you live, how much experience you have, and what kind of work you are doing.
What are the extra costs that come up when you run your business? Expenses like basic office supplies, PayPal fees, accounting services, website hosting, Etsy fees, and the cost of hiring professionals like tax accountants or other help may be considered overhead costs.
Example That Shows the Formula in Action
When you add all these elements together, you should have a pricing strategy that helps you build a sustainable business with healthy profit margins. Here’s an example:
Say you sell handmade pottery. Supplies may include your clay and glaze, but you should also factor in the money spent on your kiln, throwing wheel, and painting gear. For a small mug, say materials cost about $10.
Then set a wage and labor standard for yourself. If you can produce multiple items in an hour and set a rate of $25 per hour, your labor costs per item may fall around $5.
Overhead costs may include a workspace in your home or garage, website, marketing, and selling fees. When you divide these costs by the amount of products you sell, you may add an additional $5 per product.
At this point, your product is priced at about $20. Add a small amount for profit, and you may price items around $22 or $23 when selling online.
Ways You can Market Your Business
Once you set your online store’s minimum base price and cost per item, you may change them a little bit over time. Your strategy can change over time based on how you market and talk to customers. Here are some things to think about when setting up and changing pricing formulas.
Do your research – find out what similar items are selling for:
You can also find a fair price for some things by doing some simple market research. Check out online shops like Etsy and Google Shopping to compare the prices of similar items.
Price your item accordingly and be willing to negotiate:
Craft prices can also be a little bit flexible. If customers always ask for a discount, setting a slightly lower price might bring in more customers. But if things often sell out fast, a fair price may be a bit higher.
Implement Strategies to reduce the impact on your small business expenses:
Prices in retail stores can sometimes be changed. For example, you could give customers discounts or free shipping if they buy a certain number of items or spend a certain amount in your shop.
Take good quality photos and write a detailed description:
More sales can be made if your photos and descriptions are good. Include pictures of the product on a model or next to something that shows how big it is and in front of a plain background. Include all the important information in the description, such as the size and the materials used.
Keep good records:
Like any other business, a craft business needs to keep track of its money. Keep track of how much you earn and how much you spend on materials and other costs. Over time, you might notice patterns that affect how you price your products.
What Benefits You Can Expect to See?
Taking into account all of your business costs and leaving room for a profit can help your business in many ways, such as:
- Pay yourself what you’re worth.
- Make enough extra to scale up.
- Make a fund for unplanned costs.
- Keep organised records of everything you do in business.Template for Pricing Handmade Goods
Consider using a workbook, calculator, or template to standardise a pricing formula for your Etsy shop or handmade business. Here is a model that might help:
[Product supplies + [hourly wage x time spent making each product] + standard business expenses are charged for each item. x profit margin.